BRADNER: Gov. Pence's reputation rides on plan to cut income taxes

INDIANAPOLIS - Strange as it might sound, Indiana’s current budget debate — focused largely on whether Gov. Mike Pence will get the small individual income tax cut he has proposed — has a lot to do with John Gregg.

The proposal would have cost the state about $500 million per year. It was a populist idea, but unrealistic, since Gregg also wanted to beef up Indiana’s funding for education and health care while also launching a prekindergarten pilot program.

Still, it wasn’t long before the Pence campaign hit back. The Republican proposed a similar-sized tax cut, also worth a little more than $500 million per year total. He’d reach that total a different way: by lowering the state’s income tax rate from 3.4 percent to 3.06 percent — or, as the public-relations pitch goes, by 10 percent.

The income tax cut became the central plank of Pence’s campaign. And once he was elected, the new governor who is still working to overcome criticism that he failed to shepherd any bills he introduced into law during his 12 years in the U.S. House, knew he had to stick with it. He highlighted the tax cut in his inaugural address and his first State of the State speech.

That the governor has so much riding on the tax cut helps explain his dramatically different reactions to a budget approved by the House earlier this year and one the Senate unveiled last week.

The House’s budget is a fairly conservative document, but it did not include Pence’s proposed tax cut, as House Speaker Brian Bosma, R-Indianapolis, said he was concerned that the governor’s proposal might not be “sustainable” and warned that it would leave the state even more dependent on its sales tax, which is vulnerable to economic turbulence.

That prompted Pence to blast the House’s effort, saying he is “very disappointed” it did not include an income-tax cut.

The Senate, meanwhile, decided to help the governor out. It gave Pence about 30 percent of what he wanted, lowering the state’s individual income tax rate from 3.4 percent to 3.3 percent. That 0.1 percent reduction would save someone earning $40,000 per year about $40 a year, or $1.50 in each two-week paycheck.

Pence’s reaction was dramatically different. He called the Senate’s budget “a good start.”

“I remain confident that we will continue to come together. I believe this, the latest version of this budget, does signal that there is a pathway to creating a successful budget that will meet our administration’s objectives,” he said.

The Senate’s budget proposal actually spends a little more than the House’s spending plan does, and it also reduces the tax dollars Indiana will collect in future years. Its inclusion of a sliver of Pence’s tax cut proposal is among the only reasons for conservatives to prefer the Senate version to the House’s budget.

Pence was asked to explain the stark difference in his responses to the two budgets last week.

“Well, let me say, I called it a good start. And I believe it really does represent good faith by all parties. Look, I know we’ve been involved in a vigorous discussion in this building about which taxes to cut and by how much — which by the way is not the argument most states are having right now,” he said.

That focus on the tax cut gives lawmakers enormous leeway to set state policy through other measures both in and out of the budget — a reality that will ultimately serve as a learning experience as Pence heads into future legislative sessions.

Though Pence’s full tax cut would save average Hoosiers less than $5 a paycheck, surely the most significant impacts of Indiana’s next two-year state budget, which will be worth $30 billion or so, will be in the areas of public education and health care.

But Pence staked so much on an income-tax cut — one with roots in the back-and-forth of last summer’s campaign — that it is how his clout will be measured once the legislative session wraps up by April 29. For better or worse, that’s why the governor is pouring all of his political capital into that one proposal.